Intra-Group Secondments to Germany: When Do You Need an Employee Leasing License?

German law treats the commercial supply of workers to a third party as employee leasing (Arbeitnehmerüberlassung) under the German Employee Leasing Act (Arbeitnehmerüberlassungsgesetz, “AÜG”). A company that hires out its own staff for another company to direct and integrate into its operations is engaged in employee leasing, and ordinarily needs a license (Erlaubnis) from the Federal Employment Agency (Bundesagentur für Arbeit) to do so lawfully.

An intra-group secondment looks similar on the surface – an employee moves from one group entity to work at another – but it is a distinct legal concept. In a genuine secondment, the employee’s original employment relationship continues, and the arrangement is generally understood as an internal reallocation of resources within a single economic unit rather than a commercial supply of labor. This is why German law provides a specific exemption for intra-group assignments. Groups moving people in the other direction face a related but distinct set of questions when posting German employees abroad, and a related but distinct scenario arises where a foreign company is posting employees to Germany without a branch office – the tax and social security questions in both cases differ from the group privilege analysis in this article, but groups often need to assess all of them together.

Many groups have historically assumed that any assignment between group companies falls automatically within this exemption. That assumption does not hold up under current German case law.

German law exempts assignments between companies belonging to the same corporate group (Konzern) – generally known as the group privilege (Konzernprivileg) – from the AÜG’s requirements generally, not only the licensing obligation, provided the employee was not hired or employed for the purpose of being leased out. A small number of narrow provisions still apply regardless, including restrictions on leasing into the construction industry and the Federal Employment Agency’s general administration and inter-agency cooperation duties, but neither is relevant to a typical corporate intra-group assignment, and the core practical effect for most groups is that no license is needed. Whether two entities actually count as part of the same group for this purpose is not a matter of general business understanding – German law cross-references Section 18 of the Stock Corporation Act (Aktiengesetz, “AktG”) for the legal test of affiliated companies, so this threshold question should be confirmed before relying on the exemption at all.

The condition that the employee was “not hired or employed for the purpose of being leased out” is stricter than it looks. Hiring and employment are treated as alternative tests, not cumulative ones: an assignment falls outside the exemption if the employee was hired for the purpose of the leasing, or if the employee is later employed for that purpose – even where the original hiring had nothing to do with any leasing arrangement (German Federal Labor Court, 12 November 2024 – 9 AZR 13/24). In practice, this means a group cannot rely on the exemption simply because the sending entity is the formal employer on paper with a substantive original job description. What matters just as much is how the assignment actually functions and how long it has been running, assessed against the factors below.

German courts have explicitly rejected using any set duration as a threshold for losing the exemption. There is no fixed time period that by itself removes the exemption – it is a question of overall circumstances, not a bright-line rule.

Legal commentary in Germany is divided on whether the group privilege exemption is fully compatible with EU law, and the BAG’s 2024 ruling explicitly left the question open. Some commentators argue the exemption is compatible, pointing to the Court of Justice of the European Union’s ruling in Alb Fils Kliniken (22 June 2023, C-427/21), which held that the EU’s Temporary Agency Work Directive (2008/104/EC) does not apply to certain permanent staff-transfer arrangements within a corporate group. Other commentators maintain that the group privilege exemption remains incompatible with EU law regardless of that ruling, which concerned a related but distinct AÜG provision rather than the group privilege itself. Neither the German courts nor the CJEU has resolved this question specifically for the group privilege exemption, and it adds a further layer of uncertainty for groups planning to rely on the exemption over the long term.

The following factors carry weight in assessing whether an intra-group arrangement amounts to employee leasing requiring a license:

• Direction and control: Whether the host company, rather than the sending employer, gives the employee day-to-day instructions on how, when, and where to work, as opposed to purely project-related, results-focused direction under a genuine works contract.
• Integration: Whether the employee is integrated into the host company’s operational structure, reporting lines, and working environment in the same way as its own staff.
• Purpose of employment: Whether the employee’s role was created or has evolved to serve an ongoing placement at the host entity, rather than a substantive position with the sending employer.
• Whether the sending company has genuine work of its own: If the sending entity has no operational structure or business activity of its own in which the employee could actually be employed, this points toward the employee being hired or kept on purely to supply labor to the host.
• Reason for the assignment: A specific, defined reason that serves the employee’s own interests or development – such as a training placement, covering a colleague’s absence, or a defined project – weighs against reclassification. An assignment that simply covers the host company’s ordinary, recurring staffing needs, with no such defined purpose, weighs toward it.
• Duration and continuity: Whether the assignment is a genuinely temporary secondment with a defined return, or an open-ended, continuous deployment that in substance functions as permanent placement with the host company.
• Commercial and organizational responsibility: Whether the sending employer retains meaningful responsibility for the employee’s work, or has effectively handed over both direction and outcome to the host company.

None of these factors is decisive on its own; German courts weigh them together. A standard group mobility or transfer clause in an employment contract, on its own, does not defeat the exemption – the concern is how an assignment actually functions, not the existence of a clause that merely permits one.

Where an intra-group assignment is later found to constitute unlicensed employee leasing, the consequences can be significant:

• Deemed employment relationship: Under Section 10(1) AÜG, if the sending company lacks the required license, an employment relationship is deemed to arise directly between the employee and the host company – regardless of what the parties intended or documented.
• Invalid contractual structure: Secondment agreements, intra-group service agreements, and cost allocation arrangements built around the assumption that the exemption applies may not achieve their intended legal effect.
• Administrative fines: Unlicensed employee leasing is an administrative offense under Section 16(1) AÜG and can result in fines of up to EUR 30,000, chargeable against both the sending company and the host company. Where the employee is a foreign national and the host company continues to let them work without the residence or work permit that the arrangement actually requires, a separate and considerably larger fine of up to EUR 500,000 applies under Section 16(1) No. 2 AÜG.
• Criminal liability in specific circumstances: Section 15 AÜG makes it a criminal offense for the sending company, acting as an unlicensed lender, to lease out a foreign national who lacks the residence or work authorization needed for the role – punishable by up to three years’ imprisonment or a fine, rising to between six months and five years in especially serious cases.
• Employment law exposure: An employee who succeeds in establishing a deemed employment relationship with the host company may be able to assert claims, such as equal treatment with the host company’s own staff, that were not budgeted for in the original assignment.
• Group-wide compliance exposure: A group with several long-running intra-group assignments into Germany, structured the same way, may find that more than one arrangement is affected once the pattern is reviewed.

Before relying on the group privilege exemption for an assignment into Germany, multinational companies should:

• Review existing long-term intra-group assignments into Germany, especially open-ended ones with no defined return date, to assess whether they still qualify for the exemption under the current standard. There is no fixed legal cutoff for duration, so this is a matter of priority rather than a strict trigger – the longer-running and more indefinite an assignment, the more worth reviewing first.
• Document the operational reality of each assignment, not just the paperwork – who directs the employee’s daily work, who the employee reports to, how integrated the employee is into the host entity’s operations, and whether there is a specific, defined reason for the assignment as opposed to ongoing coverage of the host company’s routine staffing needs.
• Confirm that the sending entity has genuine business activity and organizational responsibility of its own in which the employee could be employed, rather than existing solely to supply labor to the host company.
• Build a defined end date and genuine return plan into secondment agreements, and avoid open-ended or repeatedly extended placements where possible.
• Consider, for assignments that resemble employee leasing in substance, whether an AÜG license should be obtained rather than relying on the exemption.
• Build this assessment into the planning stage of any assignment to Germany, rather than treating it as a formality to confirm after the assignment has already started.
• Where the employee is a non-EU national holding an Intra-Corporate Transfer (ICT) Card, check that the arrangement still matches a genuine intra-corporate transfer. Section 19(1) AufenthG defines an intra-corporate transfer as the temporary secondment of an employee within the same company or group – the same secondment concept at issue in the AÜG analysis above. A reclassification as employee leasing removes the statutory basis for the permit itself, not just the employment law footing, and continuing to let the employee work in that changed situation can also trigger the separate, higher fine described above.

Given the fact-specific nature of this test, companies should seek legal advice before finalizing an intra-group assignment to Germany wherever the assignment is expected to run for an extended period, where the employee will be closely integrated into the host company’s operations, or where an existing assignment already shows these characteristics and has not yet been checked against the current standard. Early advice at the planning stage is considerably less costly than resolving a deemed employment relationship or defending an administrative fine after the fact.

At Schlun & Elseven Rechtsanwälte, our employment lawyers advise multinational groups on structuring intra-group secondments and assignments to Germany, including assessing whether the group privilege exemption applies and, where it does not, guiding companies through the AÜG licensing process.